To understand a crypto wallet, we must first understand what cryptocurrency is. In a layman's language, cryptocurrency is digital money. This means transactions occur on the internet; there is no physical platform.
Today most people are opting to invest in crypto despite their high risks. This is primarily due to their extremely high profits. Crypto enables diversification, fees avoidance, transparency, reduction in transaction costs, etc. It certainly has myriads of benefits that outweigh its cons.
Definition of a Crypto Wallet
You must also invest in a quality crypto wallet when you invest in cryptocurrency. What is a crypto wallet? A cryptocurrency wallet functions like your dollar wallet.
It is a software program or physical medium that allows you to store your digital assets. Other than storing, the wallet allows you to sign smart contracts too. Thanks to the signing keys.
Private and Public Keys
The crypto wallet doesn't store the cryptocurrency itself. It stores the public or private keys instead. These keys often act as a pair that enables you to send and receive crypto. In turn, the need for some form of the regulatory body is eliminated.
The public keys are derived from the private keys. They allow you to receive cryptocurrency transactions since they act more like an address that you can share publicly. The private keys, on the other hand, can’t be derived from the public keys.
This is because the private keys prove you are the owner of the crypto. Their primary function is to enable you to access crypto transactions by facilitating encryption and decryption.
The private keys come in various comprehensive forms. They can be a mnemonic phrase or a 64 digit hexadecimal code. Whatever the form, it is vital not to share these keys. Otherwise, you will lose ownership of your crypto.
Private keys are stored in a non-custodial or custodial wallet. Having these keys in a non-custodial wallet allows you to manage your crypto. On the other end, the custodial wallet manages your crypto.
Types of Crypto Wallets
Each crypto wallet is unique and serves a different purpose. Choosing the right one can be tricky, especially for beginners. Listed for you is a detailed description of the three main types of crypto wallets.
1) Hardware Crypto Wallets
Hardware crypto wallets store keys in a hardware device. It enhances security as your crypto isn't susceptible to computer hackers. To access your crypto, you plug in the hardware wallet on your computer.
Hardware crypto wallets are termed cold wallets as they operate offline. No internet simply means more security.
2) Software Crypto Wallets
Software crypto wallets store keys on a software program, usually online. Hence they are referred to as hot wallets. These wallets are less secure compared to hardware crypto wallets. However, they are usually encrypted to tighten security.
The three major types of software crypto wallets are; desktop, mobile, and web-based wallets.
3) Paper Crypto Wallets
Here the keys are written and can be printed on a physical medium. However, these wallets are prone to errors making them risky.
Crypto wallets have taken digital currency to a whole new level. Dealing with digital money is now easier and super secure. Not to forget, they facilitate speedy transactions across borders. Genuinely, the positive impact of crypto wallets is widely felt.